CREC073100 - Expenditure credit redemption: example 1 - profit-making company

CT = Corporation Tax 

AP = accounting period 

Company 1	Values
Profit	£500,000
CT liability @ 25%	£125,000
Credit for this AP	£200,000
Credit brought forward	nil
Credit received from group member(s)	nil
CT liability of other AP(s)	£50,000
Other liabilities	nil

PRE-STEP 1 RESTRICTION 

The amount of credit brought forward and the amount of credit received from group member(s) are used in that order to discharge the CT liability for this AP. 

Company 1 has no brought forward credit or amounts surrendered by a group member, so there is no need to apply the restriction.

STEP 1 

The credit amount for this AP is used to discharge the CT liability for this AP. 

-	Values
Credit for this AP	£200,000
CT liability	£125,000
CT liability after discharge	nil
Credit remaining after discharge	£75,000

STEP 2 

If the amount of credit remaining after Step 1 exceeds the initial credit amount net of a notional tax charge, it is to be reduced to the initial credit amount net of a notional tax charge. 

The notional tax charge is at the main rate of CT, 25%. 

-	Values
Amount of credit remaining after Step 1	£75,000
Net credit (£200,000 less 25%)	£150,000
Carry forward lesser amount to Step 3	£75,000
Credit withheld at Step 2	nil

STEP 3 

The amount of credit remaining after Step 2 is used to discharge any liability of the company to pay CT for any other AP. 

-	Values
Credit remaining after Step 2	£75,000
CT liability of other AP(s)	£50,000
CT liability after discharge	nil
Credit remaining after discharge	£25,000

STEP 4 

If the company is a member of a group, it may surrender some or all of the amount remaining after Step 3 to any other member of the same group. 

Company 1 chooses not to surrender any credit, leaving £25,000 remaining. 

STEP 5 

The amount of credit remaining after Step 4 is used to discharge any other liability of the company to pay a sum to HMRC, e.g. VAT or an amount due under a contract settlement. 

-	Values
Credit remaining after Step 4	£25,000
Other liabilities	nil
Credit remaining after discharge	£25,000

STEP 6 

The amount remaining after Step 5 is payable to the company by HMRC, provided that: 

• the company is not in administration or liquidation, 

• HMRC has not opened an enquiry into the company’s tax return, 

• the company does not have unpaid amounts of PAYE, Class 1 NICs or withholding tax for visiting performers. 

Company 1 meets the conditions and receives £25,000 payable credit. 

Summary	Values
Discharge at Step 1	£125,000
Discharge at Step 3	£50,000
Payable at Step 6	£25,000
Total credit for this AP	£200,000

SURRENDER TO GROUP MEMBER 

If the company is a member of a group, it may surrender some or all of the amount withheld at Step 2, plus any credit brought forward and not used at the pre-Step 1 restriction, to any other member of the same group. 

Company 1 has no amount of credit withheld at Step 2 or unused credit brought forward, so there is no need to consider a surrender. 

AMOUNTS CARRIED FORWARD 

Any amount withheld at Step 2 and/or any unused credit brought forward which is not surrendered to a group member is carried forward to the next AP. 

Company 1 has no amount of credit withheld at Step 2 or unused credit brought forward, so there is no amount carried forward.